How to build a local currency

What can be done to encourage local people to spend their money locally?

This is the question the founders of the Brixton Pound (B£) were seeking to answer when they launched a new local currency in September 2009. The B£ is ‘money that sticks to Brixton’. Following such examples as the Totnes and Lewes Pounds, it is a currency that can only be used in the Brixton area and aims to encourage local trade and production. Nearly three years after the launch, there are now £70,000 B£s in circulation and 200 businesses accept them as an alternative currency. B£ Director, Simon Woolf visited the LGiU on the 25th April for a lunchtime seminar to explain now it all happened.

The B£ originated from the work of a number of local volunteers inspired by the Transition Town movement and interested in the ‘local multiplier effect’ described by the New Economics Foundation. Their research suggested that spending money in a local independent shop has a greater economic value for the local area than spend in a multinational store such as a supermarket. A local trader will go on to spend a higher proportion of his or her profits in the area in which they live, generating additional value for the local economy. Besides encouraging people to spend their money locally, the B£ project aimed to promote discussion about the meaning of currency and the ways in which we use it.

The first B£s were paper-based (£1, £5, £10 and £20 notes) and had an expiry date. Each note showed an image of someone with a local connection to Brixton, capitalising on a sense of local pride. For Brixton residents it was a statement about their local area; for traders an opportunity to encourage customer loyalty. But usage plateaued by 2010 and it became apparent that there were limits to the expansion of the B£ as a purely paper currency. As well as the general problems with cash as a medium of payment, it is impossible to track, making it difficult to monitor its impact.

Credit cards were considered as an alternative option, but were rejected due to the cost to the trader. Instead, they developed a money transfer approach using mobile phones. Anyone wishing to purchase an item from a trader who accepts B£s can send a text message to a designated number, with a pin code and the sum they wish to pay. The trader then receives a text on their mobile phone confirming the purchase. Because the payment is customer led, it is much quicker and avoids the delay of a credit card terminal. The transaction fee of 1.5 per cent for retailers is typically lower than most credit card fees, making it popular with traders. The electronic system also supports an incentive scheme in which you receive eleven B£s for every ten pounds you transfer to your B£ account. This bonus is lost when B£s are transferred back into sterling, encouraging traders to buy locally. Although there is currently only £20,000 involved in the pay-by-text scheme, this sum is increasing rapidly and more than 70 traders are now taking part.

So what lies in store for the B£ in the future? The relationship with the local authority is a potential space for innovation. Lambeth Council was not involved from the beginning of the project, and in many ways the success of the scheme is attributable to the way in which it was led by local people. Nevertheless the council is supportive of the scheme and is currently involved in discussions about how the council can make better use of the B£. Businesses can already pay their rates in B£s, and there is the possibility that Lambeth staff could opt to get a proportion of their salary in B£s in future. In the longer term a Lambeth wide scheme may be developed, although currency for each of the distinct areas of the borough would be kept separate, to maintain the sense of locality. Another potential area of development is micro-finance. The B£ already has a partnership with the local credit union and is accumulating some level of sterling reserves. In the long term, a small business financing scheme could be the next step in the development of the initiative.

It is difficult to assess the impact of the B£. Before the launch of the electronic system it was impossible to track expenditure accurately beyond information collected from individual traders and anecdotal evidence from users. The number of small businesses in Brixton has undoubtedly grown over the last three years, but it would be hard to link this directly to the B£ experiment. However, if the take-up of the mobile system continues to grow there will be interesting data available by the end of the year. What would be particularly fascinating to know (and more challenging to discover) is the impact it has had on the sense of community in the local area, the new networks it has created and the way in which it has contributed to the ‘buzz’ about Brixton. What is certain is that more examples of local currencies are on the way. Bristol will be rolling out its own currency later in the year, and from the interest in the room other local areas may well follow suit. We will look forward to hearing more about them as they develop.